Lecture notes
Principles of Microeconomics Lecture 19 – Firm Supply
Lecture notes covering firm supply. These lecture notes cover pure competition, inverse supply function, producer surplus and long-run supply.
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Principles of Microeconomics Lecture 19 – Firm Supply Part 2 The long-run is the circumstance in which the firm can choose amongst all of its short-run circumstances.
A competitive firm’s long-run profit function is
o
o The long-run cost c(y) of producing y units of output consists only of variable costs since all inputs
are variable in the long-run.
The firm’s long-run supply level decision is to
o
The 1st and 2nd-order maximization conditions are, for y* > 0
o
Additionally, the firm’s economic profit level must not be negative since then the firm would exit the
industry. So,
o
The MC curve above the AC curve is a firms long run supply curve
The firm’s producer’s surplus is the accumulation, unit by extra unit of output, of extra revenue less extra
production cost.
The firms producer surplus is
o
o That is, Producer Surplus = Revenue - Variable Cost
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